The Medical Application Fee: It’s just a camouflaged levy

10 April 2013 / by Brian Mackie / Costs, Governance, Medical

stethoscopeWhat do you get in return for the $313 fee to apply for a medical examination? It’s a question that has puzzled everyone except the CAA and Transport Minister Gerry Brownlee since the new charge was introduced in November 2012.

The answer is:

You get nothing at all, but you’re paying something for literally everything to do with the Central Medical Unit.

It has taken several long months to wring the truth from the CAA.

We all know that when we buy a packet of Corn Flakes from the local supermarket, there are overheads in the price.

The difference between a supermarket and the CAA is that with Pak N Save and Countdown, you are offered a limited choice of purchasing power (given that New Zealand is a tiny economy, there are only two major supermarket operators and – like electricity prices – competition is largely a myth).

But here, we are talking about a government department, where users have no choice whatever.

So, forget about what you receive in return for the medical application fee, and remember that the justification for all those increases was the National Party’s flawed notion of User Pays.

We can now reveal what you are paying for, and it turns out that you will never use much (if any) of it.

In a series of exchanges with the CAA, it has become clear that the $313 medical application fee is not based on the principle of User Pays in relation to a specific service supplied. It is merely a disguised levy intended to bolster the income required to pay for the entire costs of the Medical Unit.

But the culprits could be in for some unexpected trouble because of these precedents:

From p49 of the Regulations Review Committee Digest – 4th edition

Report of the Regulations Review Committee “Inquiry into the Civil Aviation Regulations 1953, Amendment No 31” [1991] AJHR I16B.

D Fees……………….

If a user of a service is required to pay a fee then, as a general rule, the user must receive the benefit of that service. If the user is paying for something which he or she does not receive, then the regulation setting the fee may have constituted an unusual or unexpected use of the relevant regulation-making power. Two reports of the Committee illustrate the point. First, the Civil Aviation Regulations 1953, Amendment No 30, increased licence fees payable by flight crews and aircraft maintenance engineers.[162] Part of that fee was to offset the cost of research into training methods for pilots. The Committee found that existing pilots would receive no benefit from the research being undertaken and, therefore, requiring them to contribute to this research represented an unusual and unexpected use of the regulation-making power.

Secondly, the Land 43 Transfer Amendment Regulations 1998 increased fees for its services.[163] These increases were to cover the cost of a new automated land information system. Again, the problem was that current users were paying for something they may not receive any benefit from. Thus, people buying a property were required to pay for a system they might never use. Consequently the regulations were deemed to be in breach of this ground. The Committee recommended that the regulations be reviewed to ensure that the costs of the system be passed on to those who would actually benefit from it.

This latest levy is based on what the CAA describes as “expected transactions”. In trying to explain what the $313 covers, CAA Official Information and Privacy Officer Jo Beckwith stated:

The information provided outlines all the activities that are undertaken by the medical unit. The functions of the medical unit have not changed since the introduction of the medical application fee.

However what has changed is the way the CAA funds its activities. This was as a result of the CAA implementing existing Government Policy requiring us to recover funds from aviation participants. The old framework did not meet the costs of the CAA and contained a number of cross-subsidies. The government believes that those who choose to fly, or operate airlines and aircraft, should meet the full cost of regulating these operations. The new framework has moved toward full cost recovery for most services.

Therefore, although the medical examination fee is “new” in terms of only recently being introduced, the fee is not as a result of the medical unit undertaking any “new” functions.

As already stated the information provided to you outlines all the activities that the medical unit performs and includes activities associated with the medical application fee. The system that was used to calculate the fee calculates the time, people costs and overhead costs against the need to spread those costs over the number of transactions related to medical applications expected to be received. [Our emphasis]

Now ask yourself: “What happens if the number of transactions related to the medical application fee falls?” The answer must be that the “system” which was used to ascertain the original charge (and which apparently took the CAA two years to create) will be revisited. We could then find that a reduced number of applicants face an even further increased charge to meet the shortfall in income.

So, what does your $313 pay for?

The full details can be found under Costs in the top toolbar. We have replicated all the information supplied by CAA in support of its costs for the Medical Unit. To summarise:

The $313 comprises a proportion of the unit’s costs as expressed in hours worked. To get a genuinely accurate cost of the unit’s operation, we would need to know how many people are currently employed in it and how much space in Planet Asteron they occupy, but we don’t yet have that information.

Your $313 helps to pay for, among other things (as described by CAA in the arcane language beloved of bureaucrats):

♦ Production of ME newsletters

♦ Maintaining contact with CASA

♦ Digitisation of Medical Information (converting paper-based records into electronic records)

♦ Planning and Risk Management

♦ Receiving and processing information queries directed from the Publishing team for queries that are sent to CAA via the CAA website and CAA e-mail address

♦ The Training, Appointment and management of the medical Examiner Training programme

♦ Special leave, responding to official information requests, accommodation pack/unpack, Jury/Witness service, industry liaison and external relations

♦ Activities for other Groups/Units within CAA that have involved medical unit staff

♦ All absences from the workplace

♦ Those aspects that have a wider organisational focus or management aspects not covered in other management group operating plans

According to the CAA, the expected funding requirement for the Medical Unit will be $2.2m per annum for the next few years. In correspondence with the AIA in October 2010, it said:

“The medical unit has a staff complement of three doctors, six licensing advisers and one executive officer.

The costs of the Medical Unit reflected in the Funding Review consultation documents were estimated as the same proportion of estimated CAA costs as the Medical Unit costs were to total CAA costs in the 2008/9 year. This included the salary cost of the Medical Unit together with overheads.

Specifically, total personnel and training costs represent 51% of medical unit costs, other direct costs 4% and CAA allocated overhead costs 45%. The medical unit is not charged directly with legal costs, but it is, in common with all of the operational costs centres within CAA, allocated a proportion of the costs of the legal unit as overhead.”

Do you detect an element of cross-subsidy in all this?

In his November 2012 statement attempting to justify the increased costs to aviation, and in his subsequent utterances, Gerry Brownlee has made great play of the phrase “those who choose to fly” – with the implication that only those wealthy enough to do so would choose to fly.

Gerry Brownlee is not in touch with reality. Some people must fly because it is their livelihood, and this includes people who are not employed by airlines and cannot recover the levy. For others, it is a hobby for which they should not be unduly penalised in comparison with, say, boaties.

What the medical application fee proves is that it is not possible to lump together and fairly apply such crudely calculated User Pays rules to everyone involved in aviation. By following this simplistic mantra, the CAA and John Key’s National-led Government have done everyone – including airline passengers – a gross disservice.

A GAA correspondent spent some time talking about this with pilots at the Omaka Classic Fighters air show and he commented that in his straw poll, about 50 percent of Class 2 pilots said they would not be renewing because of the new levy. This supports the view that either the CAA will see sense and drop the charge, or it will face the law of diminishing returns and further punish those who remain in the system.

The medical application fee is a classic example of the faults in the blunderbuss theory of User Pays. The application of this silly idea to general aviation is patently unfair, unjust and harmful – and one way or another, it must come to an end.